PayPal PYPL
What does PayPal do?
PayPal operates a digital payments platform that connects merchants and consumers worldwide. Users can pay online and in stores, send and receive money and transfer balances to bank accounts. Funding sources include bank accounts, balances held at PayPal or Venmo, credit and debit cards and cryptocurrencies. Its offering includes the PayPal, Venmo, Braintree, Xoom, Hyperwallet, Honey and Paidy brands.
Revenue comes mainly from transaction fees that merchants pay for processing payments. Added to this is income from currency conversion, withdrawal fees, interest and fees from credit products, and partnerships. The company benefits from its two-sided network: many consumers with a linked account make the platform attractive to merchants and vice versa. In competition, PayPal faces card networks, banks, merchant payment processors and the payment offerings of large technology companies. Brand awareness and the large user base are among its strengths.
Score profile
Rank vs. Credit Services (29 companies). 10 = top of the group, 5 = middle. Calculated from the metrics below, without AI.
Metrics compared with the industry
On profitability and quality, PayPal ranks in the middle in the group Credit Services (4.3/10). On growth, the company ranks below average in the group Credit Services (2.6/10). On valuation (higher = cheaper), the stock ranks in the middle in the group Credit Services (4.7/10). On financial strength, PayPal ranks in the middle in the group Credit Services (5.5/10).
| Metric | Stock | Group median | Ranking |
|---|---|---|---|
| Forward P/E | 10.0x | 9.2x | better than 47 % |
| Trailing P/E | 11.2x | 12.0x | better than 61 % |
| PEG ratio | 1.0x | 0.8x | better than 41 % |
| EV/EBITDA | 8.3x | 14.0x | better than 84 % |
| Price/sales | 1.4x | 1.7x | better than 60 % |
| Price/book | 2.5x | 1.8x | better than 34 % |
| Revenue growth | 2.0% | 6.2% | better than 33 % |
| Earnings growth | -3.8% | 8.0% | better than 19 % |
| Gross margin | 40.6% | 70.1% | better than 19 % |
| Operating margin | 18.4% | 20.9% | better than 43 % |
| Net margin | 13.8% | 16.8% | better than 43 % |
| Return on equity | 23.8% | 15.9% | better than 67 % |
| Debt/equity | 73.2% | 149.4% | better than 63 % |
| Current ratio | 1.3x | 3.5x | better than 26 % |
| Free cash flow yield | 9.2% | 0.0% | better than 91 % |
| Dividend yield | 1.0% | 1.6% | – |
| Payout ratio | 10.7% | 19.1% | – |
| Beta | 1.32 | 1.18 | – |
Valuation: what is PayPal worth?
Two valuation approaches – a discounted cash flow model and a valuation at the industry’s median multiples – give PayPal a model range of 42.87 USD to 54.53 USD per share.
33 analysts, average rating “Hold”, average price target 57.13 USD (−2.8%).
The full DCF matrix, the reverse DCF (what growth the price implies) and scenarios are part of the Pro analysis.
What the business depends on
- Total payment volume on the platform largely determines transaction revenue and depends on e-commerce and consumer behavior.
- The number of active accounts and how often they are used strengthen the network effect between consumers and merchants.
- Additional services such as credit products, currency conversion, Venmo offerings and merchant solutions broaden revenue sources beyond the basic fee.
Risks
- Strong price and technology competition from banks, card networks, payment processors and mobile payment providers can weigh on fee margins.
- Regulatory requirements on payments, consumer protection, money laundering and data protection in many countries cause costs and restrictions.
- Fraud, cyberattacks and credit losses can lead to losses and damage to trust and disrupt business operations.
What to look for with PayPal
Transaction margin after transaction costs is informative because it shows how much earnings remain per unit of processed payment volume after fraud, credit and processing costs.